A Home Mortgage Type You May Not Have Heard Of: Reverse Mortgages
Posted 04/21/09
Do you have significant equity tied up in your home mortgage? Are you looking for a new source of passive income? And are you 62 or older? If you answered yes to all three questions, you should give serious thought to a reverse mortgage. A reverse mortgage is a form of home mortgage in which a lender pays you out of the equity in your home. You receive your home's value in a lump sum or in monthly payments, and you are free to stay in your home until you move to another house, transfer to an assisted living facility or nursing home, or pass on.Will my taking out a reverse mortgage cancel out my current home mortgage?
No, but you are strongly encouraged to pay off the remainder of any existing home mortgages with the proceeds of your reverse mortgage. In some areas, homeowners are not allowed to have both a regular home mortgage and a reverse mortgage on the same piece of property. If you live in one of those areas, you will be required to put your reverse mortgage payments toward your home mortgage, and will not be able to use the income for other purposes until your mortgage is paid off.
Can I will my house to my heirs if I take out a reverse mortgage on it?
Of course. Your heirs may repay the value of the reverse mortgage, attempt to sell the house to cover the cost of the reverse mortgage, or let the bank or other lender resell the house itself. Your heirs may need to take out a new home mortgage on the property to cover the cost of the reverse mortgage. However, taking out a reverse mortgage strongly decreases the likelihood that the property will stay in the family. You should consider a reverse mortgage only if you are not interested in having your heirs live in your house after your death.
What happens if the lender finishes making all the loan payments during my lifetime?
If the lender completes the full series of reverse mortgage payments while you are still alive and living in the house (that is, if you receive the full value of the house), you do not need to relinquish your house to the lender and move out. You may keep the money and continue to live in the house for as long as you need or want to. This will not affect the amount you, your estate, or your heirs owe when the house is sold; you cannot go into debt because of a reverse mortgage. This is one of several points that makes reverse mortgages more attractive than a regular home mortgage.